Saturday, September 28

War by another name. "Goodbye, globalization. Hello, Balkanization."

Financial Times, March 23, 2013:
Apple tax probe helps drive to build consensus on global regime

"... He said: “It is a trade war by another name – fought with income tax policies rather than tariffs. You can't assert leadership in moving to a more economically neutral and appropriate paradigm if you are knee deep in the game.” ... Big companies with well-known brands are exposed to the risk of a consumer backlash if they pay little corporate tax in countries where public opinion is running strongly against tax avoidance. In extreme cases, changing their business models in a way that exposes them to larger tax bills ..."
Miyanville via USA Today, September 27, 2013:
Amazon, Apple face more international taxes in Europe

It's no day at the plage operating a giant, successful, multinational American company, once you've run up against some very un-American notions about tax policy from abroad. Such as the "data tax" on Amazon, Apple, Facebook and Google, about to be proposed by France for adoption by the European Union.

Apparently, France would like to impose a data transmission tax on those companies -- and only those companies -- because they are the dominant platforms for Internet usage in Europe just as they are in the US, but they are "non-European," that is, American. Their dominance therefore prevents European competitors from emerging from obscurity. (How taxing the most popular sites will make other sites more popular with consumers is not clear.)

A French member of the European Parliament tells the Wall Street Journal that a data tax should be imposed because the European nations have become "just the puppets of financiers and multinationals." [...]
Bloomberg/Business Week, September 19, 2013:
The Fed wants bigger cushions for U.S. units of Deutsche Bank and others

The world’s biggest banks paint on a vast canvas. Many operate with a single, global balance sheet, raising money where it’s cheapest and investing it where it earns the highest return. So in certain countries, banks can have more liabilities than assets. Regulators allow them a free hand on the assumption that if one of their national operations runs into trouble, the home office will quickly route it all the funds it needs.

Daniel Tarullo doesn’t think that’s such a good idea. And as the point person for regulation on the Federal Reserve’s Board of Governors, he has sway in saying no. Tarullo is part of a wave of national regulators who are “ring-fencing” national banking operations -- insisting that they have a thick cushion of capital locally. The Fed doesn’t want to have to beg other central banks for help if a foreign bank in the U.S. suffers a funding crisis. Goodbye, globalization. Hello, Balkanization.

In December the Fed proposed a rule, shaped by Tarullo, that would require the U.S. units of foreign commercial and investment banks to have assets on their books well in excess of their borrowings as a buffer against losses. They can still lend and invest abroad. But the value of all the subsidiaries’ assets, whether inside or outside the U.S., has to be greater than their liabilities such as bonds, repo borrowings, or bank deposits they’ve taken in.

Although the U.S. wasn’t the first country to propose ring-fencing, the move stirred opposition because the U.S. is a vital market for global banks and, traditionally, a defender of the free flow of money across borders. Michel Barnier, the member of the European Commission who oversees financial services, wrote to Fed Chairman Ben Bernanke earlier this year that the plan could trigger an international backlash and “fragmentation of global banking markets.” What seemed to bother him most was that the Fed didn’t trust its foreign counterparts. “Trust among regulators,” he wrote, is “essential.” [...]

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